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Sunrise Over El Dorado : Alianza : December 4th 2018

  • Writer: Rupert Stebbings
    Rupert Stebbings
  • Dec 4, 2018
  • 4 min read


DAILY THOUGHT : Another day, another poll, this time from Datexco and it is a good job that politicians have thick skin because President Duque and his party leader Alvaro Uribe are in funk when it comes to approval and popularity. President Duque finds himself with a 62% disapproval level (October 40%) whilst 68% disapprove of his Government and the way they managing the country. Party leader Uribe's star has started to fall dramatically (34% approval level) as has that of Gustavo Petro 844%) - one constant theme is the positive showing of Sergio Fajardo (77% approval) who even at this early stage could be the man to beat in 2022.


MARKETS


As expected and drive the US and oil the COLCAP had a good day rising +1.91% , closing @ 1405.61pts, the closing saw USD5mn of volume and was very much to the buy side. Today's volume was USD48mn. The increase in the market was approx 50% Ecopetrol which rose 5.96% on USD11mn of volume - GrupoSura traded a similar amount after a pair of healthy cross trades. As expected the Peso had a good day on Monday gaining 1.17% to close at 3196.72 - volume on the day was USD1.2bn which is above average. Most of the currencies in the region had a decent day however it was the Peso that fared best due to the impact of oil prices on the market.

Yields were unsurprisingly down along the curve with the 2024 closing at 6.28%, down 3.8bps & the 2032 fell 5.5bps to 7.31%.


TAX REFORM

Before we even get as far as passing the tax reform - the handling of which has seen FinMin Carrasquilla come out bottom of a poll of business people and their opinion of the Cabinet members - stake holders and analysts are already turning to 2020 and beyond that 2022 in terms of budget deficits, in essence a feat that the problem is simply being kicked down the street. The central concern is that we are now on a trajectory to lower VAT and Corporation taxes in the coming years and that gap will need to be filled and also the concern that the Fiscal Rule which is something of a Holy Grail may become increasingly hard to apply.

STRATEGY

Our strategy guys have been having a quick look at what to expect for the rest of 2018 which is fast dwindling away and which is likely to be filed away on December 31st as another one of crushing disappointment here in Colombia - 4G is still spluttering, there was no post-election surge and the tax reform has come up very short amid all manner of arguments. and recriminations. COLCAP : With the caveat that we need help from overseas in terms of news flows and markets (hence a 1370 stop) we are predicting a good finish to the year with a 1430 target for the end of the year, 1.5% from where we are today. In terms of names we would steer away from the volatility of Ecopetrol and also those names that are currently struggling in terms of reputation. PESO : We would be accumulating dollars at current level buying the dips and preparing for 2019 when we expect the Peso to weaken once again quite significantly (COP3450 final target) - the risk to our strategy is a leap in oil as well as Fed Chairman Powell's recent statement of rates. BONDS : We recently closed a short on the benchmark 2024 at 6.50% and for the time being we think there is the possibility for rates to move downwards breaking the 6.36% resistance and move towards our 6.25% target or even a fraction below.


EXPORTS


On the face of it a 15.8% YoY increase in October exports looks a great number - YTD we are also up 14% so thus far its looks healthy - however we are still is the same trap, once we bore down into the numbers of over-reliance on one sector. Of the October increase 95.5% was down to the commodity sector with 2/3 of that being oil and the other 1/3 coal based products. In terms of the YTD increase we find that 92% is down to the same sector with the balance being manufacturing - as we can see if Colombia is learning from past errors it is doing it very slowly. If we look at the other side of coin and examine tonnage as opposed to FOB we find that it has been a tougher year with a 2.1% drop in October and 9% decline YTD. The YTD data here is completely opposite with commodities (-9.8% actually being bigger than the overall decline which has been arrested marginally by the increases in both manufacturing (+9.5%) and agriculture (+2.9%). The marginal difference in the commodity sector is that it is coal which represents 83% of the decline in 2018. DISCLAIMER The information contained in this report is not based on, does not include or/and has not been structured upon privileged information. Any opinion or projection contained in this document is exclusively attributable to its authors and has been prepared in an independent and autonomous way with information that was available as of this date, any investment decisions taken should be based on a variety of criteria not uniquely the information herein contained. Future projections, estimates and previsions are subject to various risks and uncertainties, which prevent us from ensuring that the former will be correct and precise in the future, or from stating that the information, interpretations and knowledge upon which they are based will eventually prove valid. In the same token, real results may substantially differ from the projections contained herein. By making use of this document you are agreeing to adhere to the limitations set forth above.

 
 
 

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